Wrapping up British paper

Scots packaging group Sidlaw has agreed a £106 million takeover bid from Copenhagen-listed Danisco, taking yet another company out of Britain's dwindling paper and packaging sector.

In the past week Field Group has agreed a £218 million bid from US rival Chesapeake, and Low & Bonar and Waddington have issued profits warnings. Analysts predict the sector, which now boasts fewer than a dozen sizeable companies, is bound to shrink further.

John Durston, chief executive of Sidlaw, who was brought in to turn the company around in October 1996, said: "There is growing competition across Europe. Our customers are increasingly either pan-European or multi-national like Unilever, Nestlé and Mars. They want to buy packaging across Europe. Economies of scale are going to be very important over the next few years both in terms of purchasing power and factory size."

He added: "Although we had done everything right in terms of turning the business round and had a very strong balance sheet we knew that we had to find a suitable partner to take things forward."

Durston said the stock market rating of smaller companies had made it impossible for Sidlaw to fund its expansion plans with its own paper. He also said that rumours that the whole paper and packaging sector might be reclassified by FT-SE International and the lack of an FT-SE 100 company in the sector had damaged share ratings.

Danisco, which is capitalised at £1.7 billion, supplies packaging from 11 factories across Europe.

Durston said another major European packaging group had been in talks with Sidlaw and added: "It finally came down to price." The management had looked at taking the company private but this would not have solved any of the industrial problems of scale.

Danisco is offering 155p in cash for each Sidlaw share, a price not seen on the stock market since October 1995, and a 36.5% premium to the price before Sidlaw said it was in bid talks.

Analysts say David S Smith, Waddington and even £1 billion-rated Arjo Wiggins could be vulnerable to bids as the European industry consolidates and US majors increasingly look beyond their own shores for expansion.